The Commitment Value of Contracts under Dynamic Renegotiation
AbstractWe examine why different renegotiation processes can lead to opposite results regarding the commitment value of third-party contracts in the presence of asymmetric information. Our main result is that a contract loses all strategic value if renegotiation is allowed during the production stage rather than only before production begins. This result casts serious doubt on the relevance of previous findings which emphasize how contracts can have commitment value even in the presence of renegotiation. Our analysis can also be used to understand the differences between many of the results in the renegotiation literature.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 25 (1994)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
Other versions of this item:
- Beaudry, P. & Poitevin, M., 1992. "The Commitment Value of Contracts Under Dynamic Renegotiation," Cahiers de recherche 9202, Universite de Montreal, Departement de sciences economiques.
- Beaudry, P. & Poitevin, M., 1992. "The Commitment Value of Contracts Under Dynamic Renegotiation," Cahiers de recherche 9202, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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- David Martimort & Aggey Semenov & Lars Stole, 2013.
"A Theory of Contracts with Limited Enforcement,"
E1304E, University of Ottawa, Department of Economics.
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